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Federal Insurance Contributions Act

Federal Insurance Contributions Act

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Published by Mary
Instructions on how to calculate FICA
Instructions on how to calculate FICA

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Published by: Mary on Jun 16, 2008
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12/15/2011

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Federal Insurance Contributions Act (FICA)
MJC Revised 12/2011 Page 1
Social Security (S.S.) and Medicare (Med or HI)
Year Type of (FICA) Maximum Taxable Earnings Rates2012 Social Security Tax $110,100.00 6.2% each for employer and employee2012 Medicare unlimited 1.45%2011 Social Security Tax $106,800.00 6.2% each for employer and 4.2% employee2011 Medicare unlimited 1.45%2010 Social Security Tax $106,800.00 6.2% each for employer and employee2010 Medicare unlimited 1.45%2009 Social Security Tax $106,800.00 6.2% each for employer and employee2009 Medicare unlimited 1.45%
Social Security Rate as part of the FICA (SS or OASDI) tax is at 6.2% of a base of $106,800 forthe year of 2010. For this subsection of the chapter, students should use the maximum taxableearnings of $106,800 unless otherwise directed by their instructor. Any earnings in excess of thecap of $106,800 are not taxable.
A careful record of each employee’s earnings must be maintained every year so that the
employer will know when the federal incom
e tax cap has been reached and when the employee’s
earnings are about to reach the cap. Very often part of a paycheck during the year will becomenon-taxable while part of it is still below the cap and still taxable. Employees have taxes takingout of every paycheck for FICA
 — 
SS so the student should only calculate the taxes for thecurrent paycheck and not the entire year unless stated in the instructions of the problem. Thepayroll system is a pay as you go system in the United States where the employee pays taxes ontheir gross pay for each paycheck during the year.
FICA Social Security (S.S.) EXAMPLES
No Employee Cumulative earningsbefore this pay periodPay amount thisperiodTaxableSalarySS Tax1 Carl $100,000 $4,308 $4,308
$267.10
2 Clay $105,000 $4,038 $1,800
$111.60
3 Charlie $125,000 $5,306 $0
$0
 
Federal Insurance Contributions Act (FICA)
MJC Revised 12/2011 Page 2
In case number 1-
Carl paid taxes on his cumulative earnings of $100,000 to date so, hisearnings are below the cap of $106,000.
Case 1.
Even with the current paycheck Carl’s
cumulative earnings has not yet reached the cap for theyear so all of his current paycheck is taxable.
In case number 2
-Clay cumulative earnings are $105,000, which is just below the cap. If youtake the cap of $106,800 minus his current cumulative earnings of $105,000 then only $1,800 of his current paycheck is below the cap and therefore taxable.
In case number 3
 – 
 
Charlie
s cumulative earnings of $125,000 is already well above the cap of $106,000 therefore none of his current paycheck is taxable.
Once an employee’s cumulative
earnings go over the cap then the rest of the years paychecks are no taxable income.

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